GUTERSLOH, Germany — It stands just a stone's throw from a sheep pasture in this provincial town in northern Germany: the corporate headquarters of Bertelsmann, the biggest international multimedia conglomerate that no one knows anything about.
In America, entertainment powerhouses such as Walt Disney Co. and Time Warner Inc. are noisily battling it out for the top competitive positions in this multichannel age. Giant broadcasting concerns--Turner Broadcasting System Inc., CBS Inc., Capital Cities/ABC Inc.--are striving to ally themselves with the best possible corporate partners for the future.
But in Gutersloh, Bertelsmann lumbers invisibly onward, rousing barely a peep from the investment community even though it holds the third-largest position in the global information-and-entertainment industry.
In its most recent fiscal year, Bertelsmann enjoyed total sales of about $14.5 billion, less than only Time Warner and Disney. Few Americans may have heard of Bertelsmann, but there are few who haven't in some way been touched by it.
If you like to curl up on a stormy evening with Danielle Steele or John Grisham, you are enriching Bertelsmann. If you enjoy period-instrument performances by forte pianist Andreas Staier, or blues artists such as Blackgirl, you are listening to Bertelsmann. If you have clipped a recipe from Family Circle magazine, if your kids blow their allowance on Crash Test Dummies albums, it all comes from Bertelsmann.
Bertelsmann says its print shops churn out 25% of the paperbacks published in America. Its book clubs boast 25 million members in 18 countries and its music clubs 10 million more. And those numbers are likely to swell if the latest Bertelsmann venture--a fledgling book club in China--takes off in that vast market.
Bertelsmann's newspaper and magazine divisions are steamrollering into information-hungry Hungary, Poland and the Czech Republic. Its broadcasting executives recently bought a stake in the top Asian music-television outlet, Hong Kong-based Channel V. In Bertelsmann's own back yard--the large and surprisingly underdeveloped German electronic-communications market--it owns a share in the top revenue-generating TV station, and promises to launch an on-line service by Christmas.
Though Bertelsmann is not a household name, it employs more than 57,000 people worldwide, more than 13,000 of them in the United States.
Sound like a good idea to buy some shares in this juggernaut? You can't. Unlike Disney, Time Warner and the many companies now so busily playing the acquisitions game in America, Bertelsmann remains a closely held concern, financing itself through internal growth rather than public stock offerings.
The great majority of its stock is held either by the descendants of the founder or by the nonprofit Bertelsmann Foundation, which funds about 80 reformist projects ranging from literacy promotion to medical research to Germany's struggle with racial intolerance--but above all on researching the best ways to run a corporation.
A look at this most un-American giant, with its tight ownership structure, its cash-rich balance sheet, its conservative corporate culture, its sense of noblesse oblige--and its global dominance--throws into question the thinking, now so fashionable in America, that the key to success in the information age is massive growth through large-scale mergers and acquisitions.
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"In these so-called mega-deals, there's usually only one thing that's mega-size, and that's the high purchase price," argues Michael Dornemann, the New York-based head of Bertelsmann's BMG Entertainment division, referring to such recent announcements as Disney's much-applauded proposed $19-billion purchase of Capital Cities/ABC.
Bertelsmann has been derided for failing to get an American film studio in its clutches so far, but Dornemann defends his company's go-slow approach: "The Americans are crazy to be paying these prices," he said in an interview with the influential German newsweekly Der Spiegel--another partly held property in the Bertelsmann empire.
The Bertelsmann way is to grow by making acquisitions of relatively inexpensive small and medium-size companies, and then building them up, said Strauss Zelnick, president and chief executive of BMG Entertainment North America, a former Fox studios executive whose arrival set off speculation that Bertelsmann's move into film production was imminent.
"Of all the entertainment businesses, the motion picture business is the one with the highest risk, and the lowest reward," he said, denying rumors that Bertelsmann will be a bidder for MGM studios.
Zelnick said Bertelsmann's U.S.-based entertainment division will occupy itself with its operations in music creation and distribution, television and radio broadcasting, audio- and video-cassette manufacture, and interactive electronic entertainment.
